Why is oil a poor conductor of heat? Does it help in insulation?
By conductor of heat, do you mean that it is bad at transferring heat via conduction? Or that it is just bad at transferring heat?
First, a picture of the molecular structure of an oil:
Oil is a liquid. Heat transfer by conduction requires strong bonds between the molecules, so that a vibration(heat) travels down the line. With liquids, this does not happen so easily since the intermolecular forces are weak. Oil should still be able to conduct heat, though, since the "arms" you see "lock" with other molecules. But this will only be short-range--the vibrations will transmit effectively between two partially "locked" molecules, but not much further than that.
The primary heat transfer mode of liquids is convection. Oil is a viscous liquid: the arms make it hard for it to move since they are hindered by the arms of other molecules. Convection involves actual motion of the medium, and with a viscous medium, this is harder. So oil isn't so great at heat transfer via convection either.
just to supplement @manishearth's answer, Oil cannot be used for insulation. I believe by insulation you mean more or less negligible thermal conductivity.
Oil, although as manishearth said is a bad conductor, but not that bad to function as an thermal insulator mainly because of convection.
What happens is the heat causes the viscosity of oil to reduce. Which causes the convection to increase.
Practically, oil is used as a coolant in many heavy duty engine.